1. Assessing Benefits for Environmental Decision Making
Chapter 7
Assessing Benefits for Environmental Decision Making
© 2004 Thomson Learning/South-Western

2. Identifying and Valuing Environmental Benefits: Conceptual Issues
Defining Incremental Benefits
Incremental benefits – the reduction in health, ecological, and property damages associated with an environmental policy initiative

3. Identifying and Valuing Environmental Benefits: Conceptual Issues
Defining Primary and Secondary Environmental Benefits
Primary environmental benefit – a damage-reducing effect that is a direct consequence of implementing environmental policy
Secondary environmental benefit – an indirect gain to society that may arise from a stimulative effect of primary benefits or from a demand-induced effect to implement policy

4. Identifying and Valuing Environmental Benefits: Conceptual Issues
Conceptually Valuing Environmental Benefits
Problem is that environmental quality is a public, nonmarketed good
Inferring society’s demand for quality allows for measuring the incremental benefits associated with any environmental policy

5. Identifying and Valuing Environmental Benefits: Conceptual Issues
Figure 7.1 Marginal Social Benefit (MSB) and Total Social Benefits (TSB) of Air Quality (% SO2 Abatement)

6. Identifying and Valuing Environmental Benefits: Conceptual Issues
Figure 7.2 Modeling Incremental Benefits for Air Quality (% SO2 Abatement) using the MSB Function

7. Identifying and Valuing Environmental Benefits: Conceptual Issues
Figure 7.3 Modeling Incremental Social Benefits for Air Quality (% SO2 Abatement) Using the TSB Function

8. Identifying and Valuing Environmental Benefits: Conceptual Issues
User Versus Existence Value
User value – benefit derived from physical use or access to an environmental good
Existence value – benefit received from the continuance of an environmental good
Total value of environmental quality = User value + Existence value

9. Identifying and Valuing Environmental Benefits: Conceptual Issues
User Value
Direct user value – benefit derived from directly consuming services provided by an environmental good
Indirect user value – benefit derived from indirect consumption of an environmental good

10. Identifying and Valuing Environmental Benefits: Conceptual Issues
Existence Value
Vicarious consumption – the utility associated with knowing that others derive benefits from an environmental good
Stewardship – the sense of obligation to preserve the environment for future generations

11. Approaches to Measuring Environmental Benefits: An Overview
Physical Linkage Approach to Environmental Benefit Valuation
Physical linkage approach – estimates benefits based on a technical relationship between an environmental resource and the user of that resource

12. Approaches to Measuring Environmental Benefits: An Overview
Behavioral Linkage Approach to Environmental Benefit Valuation
Behavioral linkage approach – estimates benefits using observations of behavior in actual markets or survey responses about hypothetical markets
Direct methods – techniques that assess responses immediately related to environmental changes
Indirect methods – techniques that examine responses about some set of market conditions related to the environmental good

13. Estimation Under the Physical Linkage Approach
Damage Function Method – models the relationship between a contaminant and its observed effects as a way to estimate damage reductions arising from policy
Assessing the Damage Function Method
Estimates only one aspect of incremental benefits
Not capable of simultaneously monetizing the benefits it quantifies
Applications of the Damage Function Method
Typically used for measuring a specific type of incremental benefit

14. Estimation Under the Physical Linkage Approach
Figure 7.4 Measuring Incremental Benefits Using the Damage Function Method, A Physical Linkage Approach

15. Estimation Under the Physical Linkage Approach
Figure 7.5 Modeling Incremental Benefits of an Ozone-Reducing Policy

16. Direct Estimation Methods Under the Behavioral Linkage Approach
Contingent Valuation Method (CVM) – uses surveys to elicit responses about WTP for environmental quality based on hypothetical market conditions
Assessing the CVM
Can be applied to a variety of environmental goods
Can assess existence value as well as user value
Subject to bias
Applications of the CVM
Estimation of the value of a statistical human life
Measuring society’s WTP for water quality improvements

17. Indirect Estimation Methods Under the Behavioral Linkage Approach
Averting Expenditure Method (AEM): An Indirect Approach Using Substitutes
Averting expenditure method – estimates benefits as the change in spending on goods that are substitutes for a cleaner environment
Assessing the AEM
Jointness of production – the fact that some averting expenditures yield benefits beyond those associated with a cleaner environment
Applications of the AEM
Wearing of seatbelts to reduce mortality risk

18. Indirect Estimation Methods Under the Behavioral Linkage Approach
Figure 7.6 Measuring Incremental Benefits Using the Averting Expenditure Method (AEM) A Behavioral Linkage Approach

19. Indirect Estimation Methods Under the Behavioral Linkage Approach
Travel Cost Method (TCM): An Indirect Approach Using Complements
Travel cost method (TCM) – values benefits by using the complementary relationship between the quality of a natural resource and its recreational use value
Assessing the TCM
Estimates only user value and not existence value
Focuses on recreational use
Estimates can bias downward if access to a site is deterred by congestion
Applications of the TCM
Used to value improvements to water bodies

20. Indirect Estimation Methods Under the Behavioral Linkage Approach
Hedonic Price Method (HPM): An Indirect Approach Using Product Attributes
Hedonic price method (HPM) – uses the estimated hedonic price of an environmental attribute to value a policy-driven improvement
Assessing the HPM
Highly intuitive
Requires extensive data on product characteristics
Applications of the HPM
Measuring how siting of hazardous waste facilities affects prices of nearby properties